Mountain Alliance : Montega Research Update

MOUNTAIN ALLIANCE AG

	Recommendation:			Buy
	Price target:	7.80 EUR (prior: 7.50 EUR)
	Upside potential:			+31 Percent
	Share data
	Share price		5.95 Euro (XETRA)
	Number of shares (in m)			6.89
	Market cap. (in EUR m)			41.0
	Enterprise Value (in EUR m)			47.2
	Code			ECF
	ISIN			DE000A12UK08
	Performance
	52 week high (in EUR)			6.05
	52 week low (in EUR)			4.58
	3 m relative to CDAX			+14.8%
	6 m relative to CDAX			+13.7%

Net Asset Value up 11% - Strong demand for digital business models expected to provide further tailwind

Yesterday, Mountain Alliance published its H1 report featuring a higher NAV, which is positive operational news flow.

11% increase in NAV: Given revenues of EUR 4.2m (PY: EUR 4.7m) the strategic focus on digital business models (e-learning,e-health, remote working, etc.) had a very positive impact on the bottom line. In concrete terms, income on investments has more than quadrupled from EUR 1.8m to EUR 7.5m today. This positive trend has mainly been driven by the strong dynamics in the EdTech market, as a result of which Mountain Alliance should have benefited from a significant increase in value in the wake of the financing round at portfolio company Lingoda (MONe: some EUR 9m). This appreciation in value as well as the proceeds from smaller disposals (Exasol amongst others) are seen to exceed the loss of value which primarily results from the strong slump in prices at Exasol (6M/21: -39.1%). Overall, net income thus improved significantly to EUR 5.0m (PY: EUR -0.5m). The NAV increased by +10.6% to EUR 52.8m. Management is confident of the further development in the second half given the growing importance of digital business models. Consequently, the management board continues to expect the NAV to increase by 5-10%. We believe this is achievable in view of the good development in H1/21.

Volume	Share price	Attractiveness of EdTech market now reflected in our valuation model: We had already
25	6.20	described the strong dynamics in the EdTech market and the corresponding opportunities
	6.00	arising for Mountain Alliance in our last Comment from July 15, 2021. That the IPO of e-
20	5.80	learning platform Babbel has been revoked on the grounds of an unfavourable capital
	5.60	market environment does not diminish the attractiveness of this segment in the long term
15	5.40	in our view.
10	5.20	Babbel had planned to go public in the current month at a sales level of EUR 147.3m (FY
5.00
	2020) and a valuation of EUR 1.1-1.3m according to the IPO prospectus. On Monday, one
	4.80
5	of the participating banks had asserted that the order book would fully cover the planned
	4.60	emission volume including the placement reserve.

0									4.40
	21-Sep	21-Dec	21-Mar	21-Jun	21-Sep
				Volume (in thsd.)			Share price (in EUR)
Source: Capital IQ
	Shareholder
	Free float						16.0%
	Mountain Partners AG			58.4%
	HLEE Finance S.a.r.l.					8.8%
	Reitham Equity GmbH			6.9%
	Daniel Wild (incl. Tiburon)			6.8%
	Redline Capital Management S.A.	3.1%

In H1/21, Babbel has grown by +18.3% yoy, which would result in sales of EUR 174.3m on the basis of a forward projection for the full year. The resultant sales multiple of 6.9x is in the middle of the valuation range and thus well below that of peers such as Coursera (Capital IQ: 10.5x), Docebo (25.7x), Duolingo (29.1x) or GoStudent (MONe: 12.9x). We believe the low valuation can be explained by the fact that Babbel generates >95% of revenues in the B2C segment whereas Docebo, for instance, is focused on B2B activities. At +18.9% yoy in FY 2020 and +18.3% yoy in H1/21, Babbel also had a much slower speed of growth than e.g. Duolingo (FY 2020: +128.5% yoy; H1/21: +67.7% yoy).

Continued next page →

Valuation of the net asset value of Mountain Alliance AG

Calendar

n.a.

Change in estimates

	2021e	2022e	2023e
Revenue (old)	-	-	-
in %	-	-	-
EBIT (old)	-	-	-
in %	-	-	-
EPS (old)	-	-	-
in %	-	-	-

Analysts

Henrik Markmann

[phone]

[e-mail]

Publication

	Comment	22 September 2021

Montega AG - Equity Research

Core investments	Potential value (in EUR m)
AlphaPet Ventures GmbH	8.4
Lingoda GmbH	14.9
Other assets/liabilities	Fair value (in EUR m)
Listed Companies	14.3
Private Equity-Portfolio (MONe)	25.8
Liquid assets	2.0
Other assets	3.8
Financial liabilities	9.4
= Net asset value	59.8
/ Shares (in m)	6.9
= NAV per share (in EUR)	8.67
less holding discount	10%
= Price target	7.80

Source: Company, Montega, Capital IQ

1

MOUNTAIN ALLIANCE AG

The IPO of a German EdTech company would be of particular relevance for Mountain Alliance given the comparability to portfolio company Lingoda, despite the lower valuation in comparison to foreign peers. If Babbel can complete a successful IPO at a later point in time or, alternatively, if the company completes a financing round at the IPO valuation level, this will likely emphasize the upside potential of Lingoda as well as that of Mountain Alliance. As we believe that Babbel has good prospects of success in the medium term, we have included Lingoda in our analysis of the potential value. The valuation of Lingoda is based on the sales multiple of Babbel (2021e: 6.9x) as well as the average EV/sales multiples of the Top 10 micro-cap companies (MC below USD 250m) from the "education software" segment which is relevant for Lingoda. The current valuation ratio is 3.8x (source: Capital IQ). The much higher valuation multiples of the listed EdTech companies (Coursera, Docebo, Duolingo) will not be taken into account for the time being. Based on the assumptions above we arrive at an average sales multiple of 5.3x, which we apply to our sales forecast of EUR 40.3m. This results in a potential value of c. EUR 212m for Lingoda. Consequently, the 7.0% stake of Mountain Alliance amounts to EUR 14.8m or EUR 2.16 per share.

Other changes in the valuation model: In addition to having added Lingoda to our core holdings, we decided to integrate the 2% stake of listed Exasol into our valuation model at market value (previously: potential value analysis). This reclassification is primarily due to a liability to major shareholder Mountain Partners AG (so-called contingent consideration) resulting from the acquisition of the "Mountain Technology" investment portfolio. According to the H1 report, this consideration is dependent on the performance of a shareholding. We assume that the magnitude of this financial liability is coupled to the performance of Exasol given that it was acquired as part of the Mountain Technology portfolio. In H1/21, the market capitalisation of Exasol (share price 6M/21: -39.1%) and the valuation at Mountain Alliance have significantly decreased. Consequently, this liability to Mountain Partners (6M/21: EUR 3.4m vs. 31.12.2020: EUR 7.7m) will have decreased as well. We thus conclude that potential proceeds from a sale of the Exasol stake would only create limited value for Mountain Alliance. Having reclassified Exasol to the listed holdings, the valuation now is largely in line with the corresponding liability.

On the basis of the total value of Mountain Alliance's investment portfolio and an unchanged holding discount of 10% we now arrive at a fair value per share of EUR 7.80 (previously: EUR 7.50).

Conclusion: Mountain Alliance's investment portfolio has shown a pleasing development and has predominantly benefited from the good sentiment of the EdTech market as well as the financing round at Lingoda. We have updated our valuation model on the basis of the published balance sheet items and the new valuation of the listed holdings as well as the core holdings. We confirm our buy recommendation with a slightly higher price target of EUR 7.80 (previously: EUR 7.50).

Montega AG - Equity Research

2

MOUNTAIN ALLIANCE AG

Company background

COMPANY BACKGROUND

Mountain Alliance is a Munich-based listed investment company focused on small to medium-sized companies with digital companies from the DACH region. The company primarily invests in comparatively mature companies with revenues of between EUR 1.0m and EUR 30m. Mountain Alliance invests in companies, which have already left the so- called early stage financing phase and are now in the growth or later stage phases. The venture capital investor currently holds 26 companies, which are divided in the fields of technology, digital business services, digital retail as well as meta platforms & media. Mountain Alliance generally holds interests of between EUR 0.5m and EUR 1.0m depending on the investment.

Below please find a brief overview of important milestones in the company's history:

2010 Foundation of Blitzstart Holding AG, which was renamed Ecommerce Alliance AG a few months later

.

Start of trading at the Frankfurt stock exchange at the end of 2010

2013 Participation of strategic major shareholder Redline Capital Management as part of a capital increase

2015 Realignment of the business model with increased focus on e-commerce

2017 Contribution of all shares of Mountain Internet AG by way of a capital increase through contribution in kind.

Listing at the Bavarian stock exchange in Munich in the "m:access" segment and in the basic board at the Frankfurt stock exchange

2018 Change of name into today's Mountain Alliance AG

.

Contribution of all shares of Mountain Technology AG by way of a capital increase through contribution in kind

2019 Implementation of a capital increase with the purpose of expanding the investment portfolio

.

Partial exit of the company's interest in Exasol AG

2020 Partial exit of the company's interest in AlphaPet Ventures GmbH Partial exit within the Exasol-IPO

2021 External Financing round at Lingoda

Investment strategy

Investments are focused on digital business models which hold the potential for disruption and economies of scale according to the assessment of Mountain Alliance. The company focuses on technology, digital business services, digital retail as well as meta platforms & media, i.e. on areas in which the management has long-term experience and an extensive network.

Mountain Alliance does not act as an aggressive activist investor, but actively contributes to the portfolio companies' value creation in advisory roles. Thanks to the listing at the stock exchange, Mountain Alliance remains flexible in the planning up until the exit contrary to typical (closed) private equity investment funds. The targeted holding period is 3-5 years despite the so-called evergreen structure.

Regular exits serve to generate financial funds for interim financing of existing portfolio companies as well as for new investments. Mountain Alliance aims for one or two (partial) exits per year. As for new investments, the company is either looking for stakes in individual companies or for entire portfolios. Mountain Alliance prefers to acquire entire portfolios from early phase investors. This also has the advantage that the acquisition entails less administrative cost and efforts. Individual stakes are combined into one holding and Mountain Alliance has to sign only one contract to acquire this holding.

MOUNTAIN ALLIANCE AG

Company background

Mountain Alliance has applied this practice in the last few years when the company acquired two promising portfolios from the network of major shareholder Mountain Partners (64.4% stake). In H2/17, the company acquired Mountain Internet AG, a holding with nine companies (Volders GmbH, Lingoda GmbH, AlphaPet Ventures GmbH amongst others). One year later, Mountain Alliance acquired Holding Mountain Technology AG, which held six companies (Exasol AG, Bio-Gate AG, movingImage EVP GmbH amongst others). By acquiring stakes in 16 companies in total, Mountain Alliance has laid the foundation for further growth.

Portfolio

Mountain Alliance is currently invested in 26 companies. The portfolio focuses on digital business models that replace traditional processes with their innovative or disruptive solutions.

Mountain Alliance's portfolio is broken down into the segments "services" and "brands". The holdings within these segments are separated into technology, digital business services, digital retail as well as meta platforms & media. The companies are segmented according to their respective organisational focus. The services segment includes all services and management companies rendering services to the companies in the Mountain Alliance portfolio as well as to third parties. This is done to ensure that maximum use is made of the synergies between the individual holdings. The segment mainly includes the companies specialised in digital business services which, with the help of their services, serve to accelerate the growth of other holdings. The second, much larger segment "brands" includes those companies specialised in technology, digital retail as well as meta platforms & media.

The companies in the technology sector are characterised by their innovative technological expertise in a variety of industries. Most of the holdings sell software applications for the B2B or B2C sectors, e.g. Lingoda for e-learning of languages, or Exasol with a database management system.

Digital business services bundles those companies offering services such as logistics (e.g. getlogics), AdTech (e.g. crealytics) or TV ads (e.g. getonTV). These services can also be made available to other portfolio companies with the aim to accelerate the growth of one another. For instance, Lingoda, the online language school, benefits from the knowledge of search engine specialist crealytics regarding the acquisition of new customers.

Source: Company, Montega

MOUNTAIN ALLIANCE AG

Company background

The digital retail segment has grown from the predecessor company E-Commerce Alliance. With these holdings, Mountain Alliance intends to participate in the transformation of the traditional stationary retail towards e-commerce in a large variety of industries. Digital retail companies are, for instance, AlphaPet Ventures (pet supplies) or Shirtinator (online retail of individually printed clothing).

The fourth segment, Meta-Platforms& Media, comprises web-based services, which bundle information from several websites to prepare this data in a clear manner for the consumers. These investments allow Mountain Alliance to be active in various end markets with different platforms. Thanks to its investment in Promipool, for instance, the company participates in an online people magazine providing its users with stories and news about German and international stars and VIPs.

			Investment Portfolio Mountain Alliance
			Name		Share		Phase
			atfinity		9.7%			Early
			Qwello GmbH		1.6%			Early
			Bio-Gate AG		15.8%			Public
			CA Customer Alliance		19.2%			Growth
Technology		Exasol AG		2.0%			IPO
	Lingoda GmbH		7.0%			Growth
			Mentavio		10.7%			Early
			mixxt GmbH		21.8%			Growth
			movingImage EVP GmbH		8.1%			Late
			Asknet Solutions AG		22.7%			IPO
			Tillhub GmbH		2.1%			Growth
			volders GmbH		13.3%			Growth
BusinessDigital	Services		crealytics GmbH		6.9%			Late
	getlogics GmbH		64.0%			Late
			getonTV GmbH		100.0%			Late
			The Native SA		7.3%			Public
			locr GmbH		12.4%			Growth
Digital	Retail		AlphaPet GmbH		1.8%			Growth
	ARThentic GmbH		15.1%			Early
			Shirtinator AG		67.4%			Late
&			GrapeCheck GmbH		10.3%			Early
		Miet24 GmbH		4.9%			Late
Platforms-	Media
	Netz Holding GmbH		0.7%			Growth
			mybestbrands GmbH		4.2%			Late
Meta			Promipool GmbH		61.5%			Growth
			Yasni GmbH		24.5%			Late

Source: Company; Updated: May 2021